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Do Hedge Funds Love Aramark (ARMK)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (read our latest 10 coronavirus predictions).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Aramark (NYSE:ARMK).

Is Aramark (NYSE:ARMK) a buy right now? The best stock pickers are taking a bullish view. The number of bullish hedge fund positions increased by 1 lately. Our calculations also showed that ARMK isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a large number of metrics investors put to use to assess stocks. A duo of the less utilized metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the elite money managers can outperform their index-focused peers by a healthy amount (see the details here).

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the fresh hedge fund action encompassing Aramark (NYSE:ARMK).

What does smart money think about Aramark (NYSE:ARMK)?

At Q4’s end, a total of 36 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards ARMK over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ARMK A Good Stock To Buy?

More specifically, Mantle Ridge LP was the largest shareholder of Aramark (NYSE:ARMK), with a stake worth $1045.8 million reported as of the end of September. Trailing Mantle Ridge LP was Kensico Capital, which amassed a stake valued at $332.3 million. D1 Capital Partners, Hound Partners, and Nitorum Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Mantle Ridge LP allocated the biggest weight to Aramark (NYSE:ARMK), around 100% of its 13F portfolio. Hound Partners is also relatively very bullish on the stock, dishing out 9.73 percent of its 13F equity portfolio to ARMK.

As one would reasonably expect, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in Aramark (NYSE:ARMK). Point72 Asset Management had $32.6 million invested in the company at the end of the quarter. Jeffrey Hoffner’s Engle Capital also initiated a $6.6 million position during the quarter. The other funds with new positions in the stock are Richard Chilton’s Chilton Investment Company, Jinghua Yan’s TwinBeech Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s also examine hedge fund activity in other stocks similar to Aramark (NYSE:ARMK). We will take a look at PerkinElmer, Inc. (NYSE:PKI), Eastman Chemical Company (NYSE:EMN), Teva Pharmaceutical Industries Limited (NYSE:TEVA), and Liberty Media Corporation (NASDAQ:FWONK). All of these stocks’ market caps match ARMK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PKI 20 841222 -5
EMN 32 493987 2
TEVA 23 943507 -1
FWONK 37 2062554 6
Average 28 1085318 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1085 million. That figure was $2128 million in ARMK’s case. Liberty Media Corporation (NASDAQ:FWONK) is the most popular stock in this table. On the other hand PerkinElmer, Inc. (NYSE:PKI) is the least popular one with only 20 bullish hedge fund positions. Aramark (NYSE:ARMK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately ARMK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ARMK were disappointed as the stock returned -60% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.

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